FDIC Law, Regulations, Related Acts

6500 - Consumer Financial Protection Bureau

Supplement I to Part 1002Official Interpretations

Following is an official interpretation of Regulation B (12 CFR Part
1002) issued by the Bureau of Consumer Financial Protection. References
are to sections of the regulation or the Equal Credit Opportunity Act
(15 U.S.C. 1601 et seq.).

Introduction

1. Official status. Section 706(e) of the Equal Credit
Opportunity Act protects a creditor from civil liability for any act
done or omitted in good faith in conformity with an interpretation
issued by a duly authorized official of the Bureau. This commentary is
the means by which the Bureau of Consumer Financial Protection issues
official interpretations of Regulation B. Good-faith compliance with
this commentary affords a creditor protection under section 706(e) of
the Act.

2. Issuance of interpretations. Under Appendix D to the
regulation, any person may request an official interpretation.
Interpretations will be issued at the discretion of designated
officials and incorporated in this commentary following publication for
comment in the Federal Register. Except in unusual circumstances,
official interpretations will be issued only by means of this
commentary.

3. Comment designations. The comments are designated
with as much specificity as possible according to the particular
regulatory provision addressed. Each comment in the commentary is
identified by a number and the regulatory section or paragraph that it
interprets. For example, comments to § 1002.2(c) are further divided
by subparagraph, such as comment 2(c)(1)(ii)-1 and comment
2(c)(2)(ii)-1.

Section 1002.1Authority, Scope, and Purpose

1(a) Authority and scope.

1. Scope. The Equal Credit Opportunity Act and
Regulation B apply to all credit--commercial as well as
personal-without regard to the nature or type of the credit or the
creditor, except for an entity excluded from coverage of this part (but
not the Act) by section 1029 of the Consumer Financial Protection Act
of 2010 (12 U.S.C. 5519). If a transaction provides for the deferral of
the payment of a debt, it is credit covered by Regulation B even though
it may not be a credit transaction covered by Regulation Z (Truth in
Lending) (12 CFR Part 1026). Further, the definition of creditor is not
restricted to the party or person to whom the obligation is initially
payable, as is the case under Regulation Z. Moreover, the Act and
regulation apply to all methods of credit evaluation, whether performed
judgmentally or by use of a credit scoring system.

2. Foreign applicability. Regulation B generally does
not apply to lending activities that occur outside the United States.
The regulation does apply to lending activities that take place within
the United States (as well as the Commonwealth of Puerto Rico and any
territory or possession of the United States), whether or not the
applicant is a citizen.

3. Bureau. The term Bureau, as used in this part, means
the Bureau of Consumer Financial Protection.

Section 1002.2Definitions

2(c) Adverse action.

Paragraph 2(c)(1)(i).

1. Application for credit. If the applicant applied in
accordance with the creditor's procedures, a refusal to refinance or
extend the term of a business or other loan is adverse action.

Paragraph 2(c)(1)(ii).

1. Move from service area. If a credit card issuer
terminates the open-end account of a customer because the customer has
moved out of the card issuer's service area, the termination is adverse
action unless termination on this ground was explicitly provided for in
the credit agreement between the parties. In cases where termination is
adverse action, notification is required under § 1002.9.

2. Termination based on credit limit. If a creditor
terminates credit accounts that have low credit limits (for example,
under $400) but keeps open accounts with higher credit limits, the
termination is adverse action and notification is required under
§ 1002.9.

Paragraph 2(c)(2)(ii).

1. Default--exercise of due-on-sale clause. If a
mortgagor sells or transfers mortgaged property without the consent of
the mortgagee, and the mortgagee exercises its contractual right to
accelerate the mortgage loan, the mortgagee may treat the mortgagor as
being in default. An adverse action notice need not be given to the
mortgagor or the transferee. (See comment 2(e)-1 for treatment of a
purchaser who requests to assume the loan.)

2. Current delinquency or default. The term adverse
action does not include a creditor's termination of an account when the
accountholder is currently in default or delinquent on that account.
Notification in accordance with § 1002.9 of the regulation generally
is required, however, if the creditor's action is based on a past
delinquency or default on the account.

Paragraph 2(c)(2)(iii).

1. Point-of-sale transactions. Denial of credit at point
of sale is not adverse action except under those circumstances
specified in the regulation. For example, denial at point of sale is
not adverse action in the following situations:

i. A credit cardholder presents an expired card or a card that
has been reported to the card issuer as lost or stolen.

ii. The amount of a transaction exceeds a cash advance or credit
limit.

iii. The circumstances (such as excessive use of a credit card in
a short period of time) suggest that fraud is involved.

iv. The authorization facilities are not functioning.

v. Billing statements have been returned to the creditor for lack
of a forwarding address.

2. Application for increase in available credit. A
refusal or failure to authorize an account transaction at the point of
sale or loan is not adverse action except when the refusal is a denial
of an application, submitted in accordance with the creditor's
procedures, for an increase in the amount of credit.

Paragraph 2(c)(2)(v).

1. Terms of credit versus type of credit offered. When
an applicant applies for credit and the creditor does not offer the
credit terms requested by the applicant (for example, the interest
rate, length of maturity, collateral, or amount of downpayment), a
denial of the application for that reason is adverse action (unless the
creditor makes a counteroffer that is accepted by the applicant) and
the applicant is entitled to notification under § 1002.9.

2(e) Applicant.

1. Request to assume loan. If a mortgagor sells or
transfers the mortgaged property and the buyer makes an application to
the creditor to assume the mortgage loan, the mortgagee must treat the
buyer as an applicant unless its policy is not to permit assumptions.

2(f) Application.

1. General. A creditor has the latitude under the
regulation to establish its own application process and to decide the
type and amount of information it will require from credit applicants.

2. Procedures used. The term "procedures" refers
to the actual practices followed by a creditor for making credit
decisions as well as its stated application procedures. For example, if
a creditor's stated policy is to require all applications to be in
writing on the creditor's application form, but the creditor also makes
credit decisions based on oral requests, the creditor's procedures are
to accept both oral and written applications.

3. When an inquiry or prequalification request becomes an
application. A creditor is encouraged to provide consumers with
information about loan terms. However, if in giving information to the
consumer the creditor also evaluates information about the consumer,
decides to decline the request, and communicates this to the consumer,
the creditor has
treated the inquiry or
prequalification request as an application and must then comply with
the notification requirements under § 1002.9. Whether the inquiry or
prequalification request becomes an application depends on how the
creditor responds to the consumer, not on what the consumer says or
asks. (See comment 9-5 for further discussion of prequalification
requests; see comment 2(f)-5 for a discussion of preapproval requests.)

4. Examples of inquiries that are not applications. The
following examples illustrate situations in which only an inquiry has
taken place:

i. A consumer calls to ask about loan terms and an employee
explains the creditor's basic loan terms, such as interest rates,
loan-to-value ratio, and debt-to-income ratio.

ii. A consumer calls to ask about interest rates for car loans,
and, in order to quote the appropriate rate, the loan officer asks for
the make and sales price of the car and the amount of the downpayment,
then gives the consumer the rate.

iii. A consumer asks about terms for a loan to purchase a home
and tells the loan officer her income and intended downpayment, but the
loan officer only explains the creditor's loan-to-value ratio policy
and other basic lending policies, without telling the consumer whether
she qualifies for the loan.

iv. A consumer calls to ask about terms for a loan to purchase
vacant land and states his income and the sales price of the property
to be financed, and asks whether he qualifies for a loan; the employee
responds by describing the general lending policies, explaining that he
would need to look at all of the consumer's qualifications before
making a decision, and offering to send an application form to the
consumer.

5. Examples of an application. An application for credit
includes the following situations:

i. A person asks a financial institution to "preapprove"
her for a loan (for example, to finance a house or a vehicle she plans
to buy) and the institution reviews the request under a program in
which the institution, after a comprehensive analysis of her
creditworthiness, issues a written commitment valid for a designated
period of time to extend a loan up to a specified amount. The written
commitment may not be subject to conditions other than conditions that
require the identification of adequate collateral, conditions that
require no material change in the applicant's financial condition or
creditworthiness prior to funding the loan, and limited conditions that
are not related to the financial condition or creditworthiness of the
applicant that the lender ordinarily attaches to a traditional
application (such as certification of a clear termite inspection for a
home purchase loan, or a maximum mileage requirement for a used car
loan). But if the creditor's program does not provide for giving
written commitments, requests for preapprovals are treated as
prequalification requests for purposes of the regulation. i

i. Under the same facts as above, the financial institution
evaluates the person's creditworthiness and determines that she does
not qualify for a preapproval.

6. Completed application--diligence requirement. The
regulation defines a completed application in terms that give a
creditor the latitude to establish its own information requirements.
Nevertheless, the creditor must act with reasonable diligence to
collect information needed to complete the application. For example,
the creditor should request information from third parties, such as a
credit report, promptly after receiving the application. If additional
information is needed from the applicant, such as an address or a
telephone number to verify employment, the creditor should contact the
applicant promptly. (But see comment 9(a)(1)-3, which discusses the
creditor's option to deny an application on the basis of
incompleteness.)

2(g) Business credit.

1. Definition. The test for deciding whether a
transaction qualifies as business credit is one of primary purpose. For
example, an open-end credit account used for both personal and business
purposes is not business credit unless the primary purpose of the
account is business-related. A creditor may rely on an applicant's
statement of the purpose for the credit requested.

2(j) Credit.

1. General. Regulation B covers a wider range of credit
transactions than Regulation Z (Truth in Lending). Under Regulation B,
a transaction is credit if there is a right to defer payment of a
debt-regardless of whether the credit is for personal or commercial
purposes, the number of installments required for repayment, or whether
the transaction is subject to a finance charge.

2(l) Creditor.

1. Assignees. The term creditor includes all persons
participating in the credit decision. This may include an assignee or a
potential purchaser of the obligation who influences the credit
decision by indicating whether or not it will purchase the obligation
if the transaction is consummated.

2. Referrals to creditors. For certain purposes, the
term creditor includes persons such as real estate brokers, automobile
dealers, home builders, and home-improvement contractors who do not
participate in credit decisions but who only accept applications and
refer applicants to creditors, or select or offer to select creditors
to whom credit requests can be made. These persons must comply with
§ 1002.4(a), the general rule prohibiting discrimination, and with
§ 1002.4(b), the general rule against discouraging applications.

2(p) Empirically derived and other credit scoring
systems.

1. Purpose of definition. The definition under
§§ 1002.2(p)(1)(i) through (iv) sets the criteria that a credit
system must meet in order to use age as a predictive factor. Credit
systems that do not meet these criteria are judgmental systems and may
consider age only for the purpose of determining a "pertinent
element of creditworthiness." (Both types of systems may favor an
elderly applicant. See § 1002.6(b)(2).)

2. Periodic revalidation. The regulation does not
specify how often credit scoring systems must be revalidated. The
credit scoring system must be revalidated frequently enough to ensure
that it continues to meet recognized professional statistical standards
for statistical soundness. To ensure that predictive ability is being
maintained, the creditor must periodically review the performance of
the system. This could be done, for example, by analyzing the loan
portfolio to determine the delinquency rate for each score interval, or
by analyzing population stability over time to detect deviations of
recent applications from the applicant population used to validate the
system. If this analysis indicates that the system no longer predicts
risk with statistical soundness, the system must be adjusted as
necessary to reestablish its predictive ability. A creditor is
responsible for ensuring its system is validated and revalidated based
on the creditor's own data.

3. Pooled data scoring systems. A scoring system or the
data from which to develop such a system may be obtained from either a
single credit grantor or multiple credit grantors. The resulting system
will qualify as an empirically derived, demonstrably and statistically
sound, credit scoring system provided the criteria set forth in
paragraph (p)(1)(i) through (iv) of this section are met. A creditor is
responsible for ensuring its system is validated and revalidated based
on the creditor's own data when it becomes available.

4. Effects test and disparate treatment. An empirically
derived, demonstrably and statistically sound, credit scoring system
may include age as a predictive factor (provided that the age of an
elderly applicant is not assigned a negative factor or value). Besides
age, no other prohibited basis may be used as a variable. Generally,
credit scoring systems treat all applicants objectively and thus avoid
problems of disparate treatment. In cases where a credit scoring system
is used in conjunction with individual discretion, disparate treatment
could conceivably occur in the evaluation process. In addition, neutral
factors used in credit scoring systems could nonetheless be subject to
challenge under the effects test. (See comment 6(a)-2 for a discussion
of the effects test).

2(w) Open-end credit.

1. Open-end real estate mortgages. The term "open-end
credit" does not include negotiated advances under an open-end real
estate mortgage or a letter of credit.

2(z) Prohibited basis.

1. Persons associated with applicant. As used in this
part, prohibited basis refers not only to characteristics-the race,
color, religion, national origin, sex, marital status, or age-of an
applicant (or officers of an applicant in the case of a corporation)
but also to the characteristics of individuals with whom an applicant
is affiliated or with whom the applicant associates. This means, for
example, that under the general rule stated in § 1002.4(a), a
creditor may not discriminate against an applicant because of that
person's personal or business dealings with members of a certain
religion, because of the national origin of any persons associated with
the extension of credit (such as the tenants in the apartment complex
being financed), or because of the race of other residents in the
neighborhood where the property offered as collateral is located.

2. National origin. A creditor may not refuse to grant
credit because an applicant comes from a particular country but may
take the applicant's immigration status into account. A creditor may
also take into account any applicable law, regulation, or executive
order restricting dealings with citizens (or the government) of a
particular country or imposing limitations regarding credit extended
for their use.

3. Public assistance program. Any Federal, state, or
local governmental assistance program that provides a continuing,
periodic income supplement, whether premised on entitlement or need, is
"public assistance" for purposes of the regulation. The term
includes (but is not limited to) Temporary Aid to Needy Families, food
stamps, rent and mortgage supplement or assistance programs, social
security and supplemental security income, and unemployment
compensation. Only physicians, hospitals, and others to whom the
benefits are payable need consider Medicare and Medicaid as public
assistance.

Section 1002.3Limited Exceptions for Certain Classes of
Transactions

1. Scope. Under this section, procedural requirements of
the regulation do not apply to certain types of credit. All classes of
transactions remain subject to § 1002.4(a), the general rule barring
discrimination on a prohibited basis, and to any other provision not
specifically excepted.

3(a) Public-utilities credit.

1. Definition. This definition applies only to credit
for the purchase of a utility service, such as electricity, gas, or
telephone service. Credit provided or offered by a public utility for
some other purpose-such as for financing the purchase of a gas dryer,
telephone equipment, or other durable goods, or for insulation or other
home improvements-is not excepted.

2. Security deposits. A utility company is a creditor
when it supplies utility service and bills the user after the service
has been provided. Thus, any credit term (such as a requirement for a
security deposit) is subject to the regulation's bar against
discrimination on a prohibited basis.

3. Telephone companies. A telephone company's credit
transactions qualify for the exceptions provided in § 1002.3(a)(2)
only if the company is regulated by a government unit or files the
charges for service, delayed payment, or any discount for prompt
payment with a government unit.

3(c) Incidental credit.

1. Examples. If a service provider (such as a hospital,
doctor, lawyer, or merchant) allows the client or customer to defer the
payment of a bill, this deferral of debt is credit for purposes of the
regulation, even though there is no finance charge and no agreement for
payment in installments. Because of the exceptions provided by this
section, however, these particular credit extensions are excepted from
compliance with certain procedural requirements as specified in
§ 1002.3(c).

3(d) Government credit.

1. Credit to governments. The exception relates to
credit extended to (not by) governmental entities. For example, credit
extended to a local government is covered by this exception, but credit
extended to consumers by a Federal or state housing agency does not
qualify for special treatment under this category.

Section 1002.4General Rules

Paragraph 4(a).

1. Scope of rule. The general rule stated in
§ 1002.4(a) covers all dealings, without exception, between an
applicant and a creditor, whether or not addressed by other provisions
of the regulation. Other provisions of the regulation identify specific
practices that the Bureau has decided are impermissible because they
could result in credit discrimination on a basis prohibited by the Act.
The general rule covers, for example, application procedures, criteria
used to evaluate creditworthiness, administration of accounts, and
treatment of delinquent or slow accounts. Thus, whether or not
specifically prohibited elsewhere in the regulation, a credit practice
that treats applicants differently on a prohibited basis violates the
law because it violates the general rule. Disparate treatment on a
prohibited basis is illegal whether or not it results from a conscious
intent to discriminate.

2. Examples.

i. Disparate treatment would exist, for example, in the following
situations:

A. A creditor provides information only on "subprime" and
similar products to minority applicants who request information about
the creditor's mortgage products, but provides information on a wider
variety of mortgage products to similarly situated nonminority
applicants.

B. A creditor provides more comprehensive information to men than
to similarly situated women.

C. A creditor requires a minority applicant to provide greater
documentation to obtain a loan than a similarly situated nonminority
applicant.

D. A creditor waives or relaxes credit standards for a
nonminority applicant but not for a similarly situated minority
applicant. i

i. Treating applicants differently on a prohibited basis is
unlawful if the creditor lacks a legitimate nondiscriminatory reason
for its action, or if the asserted reason is found to be a pretext for
discrimination.

Paragraph 4(b).

1. Prospective applicants. Generally, the regulation's
protections apply only to persons who have requested or received an
extension of credit. In keeping with the purpose of the Act-to promote
the availability of credit on a nondiscriminatory basis-§ 1002.4(b)
covers acts or practices directed at prospective applicants that could
discourage a reasonable person, on a prohibited basis, from applying
for credit. Practices prohibited by this section include:

i. A statement that the applicant should not bother to apply,
after the applicant states that he is retired.

ii. The use of words, symbols, models or other forms of
communication in advertising that express, imply, or suggest a
discriminatory preference or a policy of exclusion in violation of the
Act.

iii. The use of interview scripts that discourage applications on
a prohibited basis.

2. Affirmative advertising. A creditor may affirmatively
solicit or encourage members of traditionally disadvantaged groups to
apply for credit, especially groups that might not normally seek credit
from that creditor.

Paragraph 4(c).

1. Requirement for written applications. Model
application forms are provided in Appendix B to the regulation,
although use of a printed form is not required. A creditor will satisfy
the requirement by writing down the information that it normally
considers in making a credit decision. The creditor may complete an
application on behalf of an applicant and need not require the
applicant to sign the application.

2. Telephone applications. A creditor that accepts
applications by telephone for dwelling-related credit covered by
§ 1002.13 can meet the requirement for written applications by
writing down pertinent information that is provided by the applicant.

3. Computerized entry. Information entered directly into
and retained by a computerized system qualifies as a written
application under this paragraph. (See the commentary to
§ 1002.13(b), Applications through electronic media and Applications
through video.)

Paragraph 4(d).

1. Clear and conspicuous. This standard requires that
disclosures be presented in a reasonably understandable format in a way
that does not obscure the required information. No minimum type size is
mandated, but the disclosures must be legible, whether typewritten,
handwritten, or printed by computer.

2. Form of disclosures. Whether the disclosures required
to be on or with an application must be in electronic form depends upon
the following:

i. If an applicant accesses a credit application electronically
(other than as described under ii below), such as online at a home
computer, the creditor must provide the disclosures in electronic form
(such as with the application form on its Web site) in order to meet
the requirement to provide disclosures in a timely manner on or with
the application. If the creditor instead mailed paper disclosures to
the applicant, this requirement would not be met.

ii. In contrast, if an applicant is physically present in the
creditor's office, and accesses a credit application electronically,
such as via a terminal or kiosk (or if the applicant uses a terminal or
kiosk located on the premises of an affiliate or third party that has
arranged with the creditor to provide applications to consumers), the
creditor may provide disclosures in either electronic or paper form,
provided the creditor complies with the timing, delivery, and
retainability requirements of the regulation.

Section 1002.5Rules Concerning Requests for
Information

5(a) General rules.

Paragraph 5(a)(1).

1. Requests for information. This section governs the
types of information that a creditor may gather. Section1002.6 governs
how information may be used.

Paragraph 5(a)(2).

1. Local laws. Information that a creditor is allowed to
collect pursuant to a "state" statute or regulation includes
information required by a local statute, regulation, or ordinance.

2. Information required by Regulation C. Regulation C
generally requires creditors covered by the Home Mortgage Disclosure
Act (HMDA) to collect and report information about the race, ethnicity,
and sex of applicants for home-improvement loans and home-purchase
loans, including some types of loans not covered by § 1002.13.

3. Collecting information on behalf of creditors.
Persons such as loan brokers and correspondents do not violate the ECOA
or Regulation B if they collect information that they are otherwise
prohibited from collecting, where the purpose of collecting the
information is to provide it to a creditor that is subject to the Home
Mortgage Disclosure Act or another Federal or state statute or
regulation requiring data collection.

5(d) Other limitations on information requests.

Paragraph 5(d)(1).

1. Indirect disclosure of prohibited information. The
fact that certain credit-related information may indirectly disclose
marital status does not bar a creditor from seeking such information.
For example, the creditor may ask about:

ii. The source of income to be used as the basis for repaying the
credit requested, which could disclose that it is the income of a
spouse.

iii. Whether any obligation disclosed by the applicant has a
co-obligor, which could disclose that the co-obligor is a spouse or
former spouse.

iv. The ownership of assets, which could disclose the interest of
a spouse.

Paragraph 5(d)(2).

1. Disclosure about income. The sample application forms
in Appendix B to the regulation illustrate how a creditor may inform an
applicant of the right not to disclose alimony, child support, or
separate maintenance income.

2. General inquiry about source of income. Since a
general inquiry about the source of income may lead an applicant to
disclose alimony, child support, or separate maintenance income, a
creditor making such an inquiry on an application form should preface
the request with the disclosure required by this paragraph.

3. Specific inquiry about sources of income. A creditor
need not give the disclosure if the inquiry about income is specific
and worded in a way that is unlikely to lead the applicant to disclose
the fact that income is derived from alimony, child support, or
separate maintenance payments. For example, an application form that
asks about specific types of income such as salary, wages, or
investment income need not include the disclosure.

Section 1002.6Rules Concerning Evaluation of
Applications

6(a) General rule concerning use of information.

1. General. When evaluating an application for credit, a
creditor generally may consider any information obtained. However, a
creditor may not consider in its evaluation of creditworthiness any
information that it is barred by § 1002.5 from obtaining or from
using for any purpose other than to conduct a self-test under
§ 1002.15.

2. Effects test. The effects test is a judicial doctrine
that was developed in a series of employment cases decided by the U.S.
Supreme Court under Title VII of the Civil Rights Act of 1964 (42
U.S.C. 2000e et seq. ), and the burdens of proof for such employment
cases were codified by Congress in the Civil Rights Act of 1991 (42
U.S.C. 2000e-2). Congressional intent that this doctrine apply to the
credit area is documented in the Senate Report that accompanied H.R.
6516, No. 94-589, pp. 4-5; and in the House Report that accompanied
H.R. 6516, No. 94-210, p.5. The Act and regulation may prohibit a
creditor practice that is discriminatory in effect because it has a
disproportionately negative impact on a prohibited basis, even though
the creditor has no intent to discriminate and the practice appears
neutral on its face, unless the creditor practice meets a legitimate
business need that cannot reasonably be achieved as well by means that
are less disparate in their impact. For example, requiring that
applicants have income in excess of a certain amount to qualify for an
overdraft line of credit could mean that women and minority applicants
will be rejected at a higher rate than men and nonminority applicants.
If there is a demonstrable relationship between the income requirement
and creditworthiness for the level of credit involved, however, use of
the income standard would likely be permissible.

6(b) Specific rules concerning use of
information.

Paragraph 6(b)(1).

1. Prohibited basis--special purpose credit. In a
special purpose credit program, a creditor may consider a prohibited
basis to determine whether the applicant possesses a characteristic
needed for eligibility. (See § 1002.8.)

Paragraph 6(b)(2).

1. Favoring the elderly. Any system of evaluating
creditworthiness may favor a credit applicant who is age 62 or older. A
credit program that offers more favorable credit terms to applicants
age 62 or older is also permissible; a program that offers more
favorable credit terms to applicants at an age lower than 62 is
permissible only if it meets the special-purpose credit requirements of
§ 1002.8.

2. Consideration of age in a credit scoring system. Age
may be taken directly into account in a credit scoring system that is
"demonstrably and statistically sound," as defined in
§ 1002.2(p), with one limitation: Applicants age 62 years or older
must be treated at least as favorably as applicants who are under age
62. If age is scored by assigning points to an applicant's age
category, elderly applicants must receive the same or a greater number
of points as the most favored class of nonelderly applicants.

i. Age-split scorecards. Some credit systems segment
the population and use different scorecards based on the age of an
applicant. In such a system, one card may cover a narrow age range (for
example, applicants in their twenties or younger) who are evaluated
under attributes predictive for that age group. A second card may cover
all other applicants, who are evaluated under the attributes predictive
for that broader class. When a system uses a card covering a wide age
range that encompasses elderly applicants, the credit
scoring
system is not deemed to score
age. Thus, the system does not raise the issue of assigning a negative
factor or value to the age of elderly applicants. But if a system
segments the population by age into multiple scorecards, and includes
elderly applicants in a narrower age range, the credit scoring system
does score age. To comply with the Act and regulation in such a case,
the creditor must ensure that the system does not assign a negative
factor or value to the age of elderly applicants as a class.

3. Consideration of age in a judgmental system. In a
judgmental system, defined in § 1002.2(t), a creditor may not decide
whether to extend credit or set the terms and conditions of credit
based on age or information related exclusively to age. Age or
age-related information may be considered only in evaluating other
"pertinent elements of creditworthiness" that are drawn from the
particular facts and circumstances concerning the applicant. For
example, a creditor may not reject an application or terminate an
account because the applicant is 60 years old. But a creditor that uses
a judgmental system may relate the applicant's age to other information
about the applicant that the creditor considers in evaluating
creditworthiness. As the following examples illustrate, the evaluation
must be made in an individualized, case-by-case manner:

i. A creditor may consider the applicant's occupation and length
of time to retirement to ascertain whether the applicant's income
(including retirement income) will support the extension of credit to
its maturity.

ii. A creditor may consider the adequacy of any security offered
when the term of the credit extension exceeds the life expectancy of
the applicant and the cost of realizing on the collateral could exceed
the applicant's equity. An elderly applicant might not qualify for a 5
percent down, 30-year mortgage loan but might qualify with a larger
downpayment or a shorter loan maturity.

iii. A creditor may consider the applicant's age to assess the
significance of length of employment (a young applicant may have just
entered the job market) or length of time at an address (an elderly
applicant may recently have retired and moved from a long-term
residence).

4. Consideration of age in a reverse mortgage. A reverse
mortgage is a home-secured loan in which the borrower receives payments
from the creditor, and does not become obligated to repay these amounts
(other than in the case of default) until the borrower dies, moves
permanently from the home, or transfers title to the home, or upon a
specified maturity date. Disbursements to the borrower under a reverse
mortgage typically are determined by considering the value of the
borrower's home, the current interest rate, and the borrower's life
expectancy. A reverse mortgage program that requires borrowers to be
age 62 or older is permissible under § 1002.6(b)(2)(iv). In addition,
under § 1002.6(b)(2)(iii), a creditor may consider a borrower's age
to evaluate a pertinent element of creditworthiness, such as the amount
of the credit or monthly payments that the borrower will receive, or
the estimated repayment date.

5. Consideration of age in a combined system. A creditor
using a credit scoring system that qualifies as "empirically
derived" under § 1002.2(p) may consider other factors (such as a
credit report or the applicant's cash flow) on a judgmental basis.
Doing so will not negate the classification of the credit scoring
component of the combined system as "demonstrably and statistically
sound." While age could be used in the credit scoring portion,
however, in the judgmental portion age may not be considered directly.
It may be used only for the purpose of determining a "pertinent
element of creditworthiness." (See comment 6(b)(2)-3.)

6. Consideration of public assistance. When considering
income derived from a public assistance program, a creditor may take
into account, for example:

i. The length of time an applicant will likely remain eligible to
receive such income.

ii. Whether the applicant will continue to qualify for benefits
based on the status of the applicant's dependents (as in the case of
Temporary Aid to Needy Families, or social security payments to a
minor).

iii. Whether the creditor can attach or garnish the income to
assure payment of the debt in the event of default.

Paragraph 6(b)(5).

1. Consideration of an individual applicant. A creditor
must evaluate income derived from part-time employment, alimony, child
support, separate maintenance payments, retirement benefits, or public
assistance on an individual basis, not on the basis of aggregate
statistics; and must assess its reliability or unreliability by
analyzing the applicant's actual circumstances, not by analyzing
statistical measures derived from a group.

2. Payments consistently made. In determining the
likelihood of consistent payments of alimony, child support, or
separate maintenance, a creditor may consider factors such as whether
payments are received pursuant to a written agreement or court decree;
the length of time that the payments have been received; whether the
payments are regularly received by the applicant; the availability of
court or other procedures to compel payment; and the creditworthiness
of the payor, including the credit history of the payor when it is
available to the creditor.

3. Consideration of income.

i. A creditor need not consider income at all in evaluating
creditworthiness. If a creditor does consider income, there are several
acceptable methods, whether in a credit scoring or a judgmental system:

A. A creditor may score or take into account the total sum of all
income stated by the applicant without taking steps to evaluate the
income for reliability.

B. A creditor may evaluate each component of the applicant's
income, and then score or take into account income determined to be
reliable separately from other income; or the creditor may disregard
that portion of income that is not reliable when it aggregates reliable
income.

C. A creditor that does not evaluate all income components for
reliability must treat as reliable any component of protected income
that is not evaluated.

ii. In considering the separate components of an applicant's
income, the creditor may not automatically discount or exclude from
consideration any protected income. Any discounting or exclusion must
be based on the applicant's actual circumstances.

4. Part-time employment, sources of income. A creditor
may score or take into account the fact that an applicant has more than
one source of earned income-a full-time and a part-time job or two
part-time jobs. A creditor may also score or treat earned income from a
secondary source differently than earned income from a primary source.
The creditor may not, however, score or otherwise take into account the
number of sources for income such as retirement income, social
security, supplemental security income, and alimony. Nor may the
creditor treat negatively the fact that an applicant's only earned
income is derived from, for example, a part-time job.

Paragraph 6(b)(6).

1. Types of credit references. A creditor may restrict
the types of credit history and credit references that it will
consider, provided that the restrictions are applied to all credit
applicants without regard to sex, marital status, or any other
prohibited basis. On the applicant's request, however, a creditor must
consider credit information not reported through a credit bureau when
the information relates to the same types of credit references and
history that the creditor would consider if reported through a credit
bureau.

Paragraph 6(b)(7).

1. National origin-immigration status. The applicant's
immigration status and ties to the community (such as employment and
continued residence in the area) could have a bearing on a creditor's
ability to obtain repayment. Accordingly, the creditor may consider
immigration status and differentiate, for example, between a noncitizen
who is a long-time resident with permanent resident status and a
noncitizen who is temporarily in this country on a student visa.

2. National origin--citizenship. A denial of credit on
the ground that an applicant is not a United States citizen is not per
se discrimination based on national origin.

Paragraph 6(b)(8).

1. Prohibited basis-marital status. A creditor may
consider the marital status of an applicant or joint applicant for the
purpose of ascertaining the creditor's rights and remedies applicable
to the particular extension of credit. For example, in a secured
transaction involving real property, a creditor could take into account
whether state law gives the applicant's spouse an interest in the
property being offered as collateral.

Section 1002.7Rules Concerning Extensions of Credit

7(a) Individual accounts.

1. Open-end credit-authorized user. A creditor may not
require a creditworthy applicant seeking an individual credit account
to provide additional signatures. But the creditor may condition the
designation of an authorized user by the account holder on the
authorized user's becoming contractually liable for the account, as
long as the creditor does not differentiate on any prohibited basis in
imposing this requirement.

2. Open-end credit-choice of authorized user. A creditor
that permits an account holder to designate an authorized user may not
restrict this designation on a prohibited basis. For example, if the
creditor allows the designation of spouses as authorized users, the
creditor may not refuse to accept a non-spouse as an authorized user.

3. Overdraft authority on transaction accounts. If a
transaction account (such as a checking account or NOW account)
includes an overdraft line of credit, the creditor may require that all
persons authorized to draw on the transaction account assume liability
for any overdraft.

7(b) Designation of name.

1. Single name on account. A creditor may require that
joint applicants on an account designate a single name for purposes of
administering the account and that a single name be embossed on any
credit cards issued on the account. But the creditor may not require
that the name be the husband's name. (See § 1002.10 for rules
governing the furnishing of credit history on accounts held by
spouses.)

7(c) Action concerning existing open-end
accounts.

Paragraph 7(c)(1).

1. Termination coincidental with marital status change.
When an account holder's marital status changes, a creditor generally
may not terminate the account unless it has evidence that the account
holder is now unable or unwilling to repay. But the creditor may
terminate an account on which both spouses are jointly liable, even if
the action coincides with a change in marital status, when one or both
spouses:

i. Repudiate responsibility for future charges on the joint
account.

ii. Request separate accounts in their own names.

iii. Request that the joint account be closed.

2. Updating information. A creditor may periodically
request updated information from applicants but may not use events
related to a prohibited basis-such as an applicant's retirement or
reaching a particular age, or a change in name or marital status-to
trigger such a request.

Paragraph 7(c)(2).

1. Procedure pending reapplication. A creditor may
require a reapplication from an account holder, even when there is no
evidence of unwillingness or inability to repay, if (1) the credit was
based on the qualifications of a person who is no longer available to
support the credit and (2) the creditor has information indicating that
the account holder's income may be insufficient to support the credit.
While a reapplication is pending, the creditor must allow the account
holder full access to the account under the existing contract terms.
The creditor may specify a reasonable time period within which the
account holder must submit the required information.

7(d) Signature of spouse or other person.

1. Qualified applicant. The signature rules ensure that
qualified applicants are able to obtain credit in their own names.
Thus, when an applicant requests individual credit, a creditor
generally may not require the signature of another person unless the
creditor has first determined that the applicant alone does not qualify
for the credit requested.

2. Unqualified applicant. When an applicant requests
individual credit but does not meet a creditor's standards, the
creditor may require a cosigner, guarantor, endorser, or similar
party-but cannot require that it be the spouse. (See commentary to
§§ 1002.7(d)(5) and (6).)

Paragraph 7(d)(1).

1. Signature of another person. It is impermissible for
a creditor to require an applicant who is individually creditworthy to
provide a cosigner-even if the creditor applies the requirement without
regard to sex, marital status, or any other prohibited basis. (But see
comment 7(d)(6)-1 concerning guarantors of closely held corporations.)

2. Joint applicant. The term "joint applicant"
refers to someone who applies contemporaneously with the applicant for
shared or joint credit. It does not refer to someone whose signature is
required by the creditor as a condition for granting the credit
requested.

3. Evidence of joint application. A person's intent to
be a joint applicant must be evidenced at the time of application.
Signatures on a promissory note may not be used to show intent to apply
for joint credit. On the other hand, signatures or initials on a credit
application affirming applicants' intent to apply for joint credit may
be used to establish intent to apply for joint credit. (See Appendix
B.) The method used to establish intent must be distinct from the means
used by individuals to affirm the accuracy of information. For example,
signatures on a joint financial statement affirming the veracity of
information are not sufficient to establish intent to apply for joint
credit.

Paragraph 7(d)(2).

1. Jointly owned property. If an applicant requests
unsecured credit, does not own sufficient separate property, and relies
on joint property to establish creditworthiness, the creditor must
value the applicant's interest in the jointly owned property. A
creditor may not request that a nonapplicant joint owner sign any
instrument as a condition of the credit extension unless the
applicant's interest does not support the amount and terms of the
credit sought.

i. Valuation of applicant's interest. In determining
the value of an applicant's interest in jointly owned property, a
creditor may consider factors such as the form of ownership and the
property's susceptibility to attachment, execution, severance, or
partition; the value of the applicant's interest after such action; and
the cost associated with the action. This determination must be based
on the existing form of ownership, and not on the possibility of a
subsequent change. For example, in determining whether a married
applicant's interest in jointly owned property is sufficient to satisfy
the creditor's standards of creditworthiness for individual credit, a
creditor may not consider that the applicant's separate property could
be transferred into tenancy by the entirety after consummation.
Similarly, a creditor may not consider the possibility that the couple
may divorce. Accordingly, a creditor may not require the signature of
the non-applicant spouse in these or similar circumstances.

ii. Other options to support credit. If the
applicant's interest in jointly owned property does not support the
amount and terms of credit sought, the creditor may offer the applicant
other options to qualify for the extension of credit. For example:

A. Providing a co-signer or other party (§ 1002.7(d)(5));

B. Requesting that the credit be granted on a secured basis
(§ 1002.7(d)(4)); or

C. Providing the signature of the joint owner on an instrument
that ensures access to the property in the event of the applicant's
death or default, but does not impose personal liability unless
necessary under state law (such as a limited guarantee). A creditor may
not routinely require, however, that a joint owner sign an instrument
(such as a quitclaim deed) that would result in the forfeiture of the
joint owner's interest in the property.

2. Need for signature--reasonable belief. A creditor's
reasonable belief as to what instruments need to be signed by a person
other than the applicant should be supported by a thorough review of
pertinent statutory and decisional law or an opinion of the state
attorney general.

Paragraph 7(d)(3).

1. Residency. In assessing the creditworthiness of a
person who applies for credit in a community property state, a creditor
may assume that the applicant is a resident of the state unless the
applicant indicates otherwise.

Paragraph 7(d)(4).

1. Creation of enforceable lien. Some state laws require
that both spouses join in executing any instrument by which real
property is encumbered. If an applicant offers such property as
security for credit, a creditor may require the applicant's spouse to
sign the instruments necessary to create a valid security interest in
the property. The creditor may not require the spouse to sign the note
evidencing the credit obligation if signing only the mortgage or other
security agreement is sufficient to make the property available to
satisfy the debt in the event of default. However, if under state law
both spouses must sign the note to create an enforceable lien, the
creditor may require the signatures.

2. Need for signature--reasonable belief. Generally, a
signature to make the secured property available will only be needed on
a security agreement. A creditor's reasonable belief that, to ensure
access to the property, the spouse's signature is needed on an
instrument that imposes personal liability should be supported by a
thorough review of pertinent statutory and decisional law or an opinion
of the state attorney general.

3. Integrated instruments. When a creditor uses an
integrated instrument that combines the note and the security
agreement, the spouse cannot be asked to sign the integrated instrument
if the signature is only needed to grant a security interest. But the
spouse could be asked to sign an integrated instrument that makes
clear--for example, by a legend placed next to the spouse's
signature--that the spouse's signature is only to grant a security
interest and that signing the instrument does not impose personal
liability.

Paragraph 7(d)(5).

1. Qualifications of additional parties. In establishing
guidelines for eligibility of guarantors, cosigners, or similar
additional parties, a creditor may restrict the applicant's choice of
additional parties but may not discriminate on the basis of sex,
marital status, or any other prohibited basis. For example, the
creditor could require that the additional party live in the creditor's
market area.

2. Reliance on income of another person--individual
credit. An applicant who requests individual credit relying on the
income of another person (including a spouse in a non-community
property state) may be required to provide the signature of the other
person to make the income available to pay the debt. In community
property states, the signature of a spouse may be required if the
applicant relies on the spouse's separate income. If the applicant
relies on the spouse's future earnings that as a matter of state law
cannot be characterized as community property until earned, the
creditor may require the spouse's signature, but need not do so--even
if it is the creditor's practice to require the signature when an
applicant relies on the future earnings of a person other than a
spouse. (See § 1002.6(c) on consideration of state property laws.)

3. Renewals. If the borrower's creditworthiness is
reevaluated when a credit obligation is renewed, the creditor must
determine whether an additional party is still warranted and, if not
warranted, release the additional party.

Paragraph 7(d)(6).

1. Guarantees. A guarantee on an extension of credit is
part of a credit transaction and therefore subject to the regulation. A
creditor may require the personal guarantee of the partners, directors,
or officers of a business, and the shareholders of a closely held
corporation, even if the business or corporation is creditworthy. The
requirement must be based on the guarantor's relationship with the
business or corporation, however, and not on a prohibited basis. For
example, a creditor may not require guarantees only for women-owned or
minority-owned businesses. Similarly, a creditor may not require
guarantees only
of the married officers of a
business or the married shareholders of a closely held corporation.

2. Spousal guarantees. The rules in § 1002.7(d) bar a
creditor from requiring the signature of a guarantor's spouse just as
they bar the creditor from requiring the signature of an applicant's
spouse. For example, although a creditor may require all officers of a
closely held corporation to personally guarantee a corporate loan, the
creditor may not automatically require that spouses of married officers
also sign the guarantee. If an evaluation of the financial
circumstances of an officer indicates that an additional signature is
necessary, however, the creditor may require the signature of another
person in appropriate circumstances in accordance with
§ 1002.7(d)(2).

7(e) Insurance.

1. Differences in terms. Differences in the
availability, rates, and other terms on which credit-related casualty
insurance or credit life, health, accident, or disability insurance is
offered or provided to an applicant does not violate Regulation B.

2. Insurance information. A creditor may obtain
information about an applicant's age, sex, or marital status for
insurance purposes. The information may only be used for determining
eligibility and premium rates for insurance, however, and not in making
the credit decision.

Section 1002.8Special Purpose Credit Programs

8(a) Standards for programs.

1. Determining qualified programs. The Bureau does not
determine whether individual programs qualify for special purpose
credit status, or whether a particular program benefits an
"economically disadvantaged class of persons." The agency or
creditor administering or offering the loan program must make these
decisions regarding the status of its program.

2. Compliance with a program authorized by Federal or state
law. A creditor does not violate Regulation B when it complies in
good faith with a regulation promulgated by a government agency
implementing a special purpose credit program under § 1002.8(a)(1).
It is the agency's responsibility to promulgate a regulation that is
consistent with Federal and state law.

3. Expressly authorized. Credit programs authorized by
Federal or state law include programs offered pursuant to Federal,
state, or local statute, regulation or ordinance, or pursuant to
judicial or administrative order.

4. Creditor liability. A refusal to grant credit to an
applicant is not a violation of the Act or regulation if the applicant
does not meet the eligibility requirements under a special purpose
credit program.

5. Determining need. In designing a special purpose
credit program under § 1002.8(a), a for-profit organization must
determine that the program will benefit a class of people who would
otherwise be denied credit or would receive it on less favorable terms.
This determination can be based on a broad analysis using the
organization's own research or data from outside sources, including
governmental reports and studies. For example, a creditor might design
new products to reach consumers who would not meet, or have not met,
its traditional standards of creditworthiness due to such factors as
credit inexperience or the use of credit sources that may not report to
consumer reporting agencies. Or, a bank could review Home Mortgage
Disclosure Act data along with demographic data for its assessment area
and conclude that there is a need for a special purpose credit program
for low-income minority borrowers.

6. Elements of the program. The written plan must
contain information that supports the need for the particular program.
The plan also must either state a specific period of time for which the
program will last, or contain a statement regarding when the program
will be reevaluated to determine if there is a continuing need for it.

8(b) Rules in other sections.

1. Applicability of rules. A creditor that rejects an
application because the applicant does not meet the eligibility
requirements (common characteristic or financial need, for example)
must nevertheless notify the applicant of action taken as required by
§ 1002.9.

8(c) Special rule concerning requests and use of
information.

1. Request of prohibited basis information. This section
permits a creditor to request and consider certain information that
would otherwise be prohibited by §§ 1002.5 and 1002.6 to determine
an applicant's eligibility for a particular program.

2. Examples. Examples of programs under which the
creditor can ask for and consider information about a prohibited basis
are:

i. Energy conservation programs to assist the elderly, for which
the creditor must consider the applicant's age.

ii. Programs under a Minority Enterprise Small Business
Investment Corporation, for which a creditor must consider the
applicant's minority status.

8(d) Special rule in the case of financial need.

1. Request of prohibited basis information. This section
permits a creditor to request and consider certain information that
would otherwise be prohibited by §§ 1002.5 and 1002.6, and to
require signatures that would otherwise be prohibited by § 1002.7(d).

2. Examples. Examples of programs in which financial
need is a criterion are:

i. Subsidized housing programs for low-to moderate-income
households, for which a creditor may have to consider the applicant's
receipt of alimony or child support, the spouse's or parents' income,
etc.

ii. Student loan programs based on the family's financial need,
for which a creditor may have to consider the spouse's or parents'
financial resources.

3. Student loans. In a guaranteed student loan program,
a creditor may obtain the signature of a parent as a guarantor when
required by Federal or state law or agency regulation, or when the
student does not meet the creditor's standards of creditworthiness.
(See §§ 1002.7(d)(1) and (5).) The creditor may not require an
additional signature when a student has a work or credit history that
satisfies the creditor's standards.

Section 1002.9Notifications

1. Use of the term adverse action. The regulation does
not require that a creditor use the term adverse action in
communicating to an applicant that a request for an extension of credit
has not been approved. In notifying an applicant of adverse action as
defined by § 1002.2(c)(1), a creditor may use any words or phrases
that describe the action taken on the application.

2. Expressly withdrawn applications. When an applicant
expressly withdraws a credit application, the creditor is not required
to comply with the notification requirements under § 1002.9. (The
creditor must comply, however, with the record retention requirements
of the regulation. See § 1002.12(b)(3).)

3. When notification occurs. Notification occurs when a
creditor delivers or mails a notice to the applicant's last known
address or, in the case of an oral notification, when the creditor
communicates the credit decision to the applicant.

4. Location of notice. The notifications required under
§ 1002.9 may appear on either or both sides of a form or letter.

5. Prequalification requests. Whether a creditor must
provide a notice of action taken for a prequalification request depends
on the creditor's response to the request, as discussed in comment
2(f)-3. For instance, a creditor may treat the request as an inquiry if
the creditor evaluates specific information about the consumer and
tells the consumer the loan amount, rate, and other terms of credit the
consumer could qualify for under various loan programs, explaining the
process the consumer must follow to submit a mortgage application and
the information the creditor will analyze in reaching a credit
decision. On the other hand, a creditor has treated a request as an
application, and is subject to the adverse action notice requirements
of § 1002.9 if, after evaluating information, the creditor decides
that it will not approve the request and communicates that decision to
the consumer. For example, if the creditor tells the consumer that it
would not approve an application for a mortgage because of a bankruptcy
in the consumer's record, the creditor has denied an application for
credit.

1. Timing of notice--when an application is complete.
Once a creditor has obtained all the information it normally considers
in making a credit decision, the application is complete and the
creditor has 30 days in which to notify the applicant of the credit
decision. (See also comment 2(f)-6.)

2. Notification of approval. Notification of approval
may be express or by implication. For example, the creditor will
satisfy the notification requirement when it gives the applicant the
credit card, money, property, or services requested.

3. Incomplete application--denial for incompleteness.
When an application is incomplete regarding information that the
applicant can provide and the creditor lacks sufficient data for a
credit decision, the creditor may deny the application giving as the
reason for denial that the application is incomplete. The creditor has
the option, alternatively, of providing a notice of incompleteness
under § 1002.9(c).

4. Incomplete application---denial for reasons other than
incompleteness. When an application is missing information but
provides sufficient data for a credit decision, the creditor may
evaluate the application, make its credit decision, and notify the
applicant accordingly. If credit is denied, the applicant must be given
the specific reasons for the credit denial (or notice of the right to
receive the reasons); in this instance missing information or
"incomplete application" cannot be given as the reason for the
denial.

5. Length of counteroffer. Section 1002.9(a)(1)(iv) does
not require a creditor to hold a counteroffer open for 90 days or any
other particular length of time.

6. Counteroffer combined with adverse action notice. A
creditor that gives the applicant a combined counteroffer and adverse
action notice that complies with § 1002.9(a)(2) need not send a
second adverse action notice if the applicant does not accept the
counteroffer. A sample of a combined notice is contained in form C--4
of Appendix C to the regulation.

7. Denial of a telephone application. When an
application is made by telephone and adverse action is taken, the
creditor must request the applicant's name and address in order to
provide written notification under this section. If the applicant
declines to provide that information, then the creditor has no further
notification responsibility.

Paragraph 9(a)(3).

1. Coverage. In determining which rules in this
paragraph apply to a given business credit application, a creditor may
rely on the applicant's assertion about the revenue size of the
business. (Applications to start a business are governed by the rules
in § 1002.9(a)(3)(i).) If an applicant applies for credit as a sole
proprietor, the revenues of the sole proprietorship will determine
which rules govern the application. However, if an applicant applies
for business credit as an individual, the rules in § 1002.9(a)(3)(i)
apply unless the application is for trade or similar credit.

2. Trade credit. The term trade credit generally is
limited to a financing arrangement that involves a buyer and a
seller--such as a supplier who finances the sale of equipment,
supplies, or inventory; it does not apply to an extension of credit by
a bank or other financial institution for the financing of such items.

3. Factoring. Factoring refers to a purchase
of accounts receivable, and thus is not subject to the Act or
regulation. If there is a credit extension incident to the factoring
arrangement, the notification rules in § 1002.9(a)(3)(ii) apply, as
do other relevant sections of the Act and regulation.

4. Manner of compliance. In complying with the notice
provisions of the Act and regulation, creditors offering business
credit may follow the rules governing consumer credit. Similarly,
creditors may elect to treat all business credit the same (irrespective
of revenue size) by providing notice in accordance with
§ 1002.9(a)(3)(i).

5. Timing of notification. A creditor subject to
§ 1002.9(a)(3)(ii)(A) is required to notify a business credit
applicant, orally or in writing, of action taken on an application
within a reasonable time of receiving a completed application. Notice
provided in accordance with the timing requirements of § 1002.9(a)(1)
is deemed reasonable in all instances.

9(b) Form of ECOA notice and statement of specific
reasons.

Paragraph 9(b)(1).

1. Substantially similar notice. The ECOA notice sent
with a notification of a credit denial or other adverse action will
comply with the regulation if it is "substantially similar" to
the notice contained in § 1002.9(b)(1). For example, a creditor may
add a reference to the fact that the ECOA permits age to be considered
in certain credit scoring systems, or add a reference to a similar
state statute or regulation and to a state enforcement agency.

Paragraph 9(b)(2).

1. Number of specific reasons. A creditor must disclose
the principal reasons for denying an application or taking other
adverse action. The regulation does not mandate that a specific number
of reasons be disclosed, but disclosure of more than four reasons is
not likely to be helpful to the applicant.

2. Source of specific reasons. The specific reasons
disclosed under §§ 1002.9(a)(2) and (b)(2) must relate to and
accurately describe the factors actually considered or scored by a
creditor.

3. Description of reasons. A creditor need not describe
how or why a factor adversely affected an applicant. For example, the
notice may say "length of residence" rather than "too short a
period of residence."

4. Credit scoring system. If a creditor bases the denial
or other adverse action on a credit scoring system, the reasons
disclosed must relate only to those factors actually scored in the
system. Moreover, no factor that was a principal reason for adverse
action may be excluded from disclosure. The creditor must disclose the
actual reasons for denial (for example, "age of automobile") even
if the relationship of that factor to predicting creditworthiness may
not be clear to the applicant.

5. Credit scoring--method for selecting reasons. The
regulation does not require that any one method be used for selecting
reasons for a credit denial or other adverse action that is based on a
credit scoring system. Various methods will meet the requirements of
the regulation. One method is to identify the factors for which the
applicant's score fell furthest below the average score for each of
those factors achieved by applicants whose total score was at or
slightly above the minimum passing score. Another method is to identify
the factors for which the applicant's score fell furthest below the
average score for each of those factors achieved by all applicants.
These average scores could be calculated during the development or use
of the system. Any other method that produces results substantially
similar to either of these methods is also acceptable under the
regulation.

6. Judgmental system. If a creditor uses a judgmental
system, the reasons for the denial or other adverse action must relate
to those factors in the applicant's record actually reviewed by the
person making the decision.

7. Combined credit scoring and judgmental system. If a
creditor denies an application based on a credit evaluation system that
employs both credit scoring and judgmental components, the reasons for
the denial must come from the component of the system that the
applicant failed. For example, if a creditor initially credit scores an
application and denies the credit request as a result of that scoring,
the reasons disclosed to the applicant must relate to the factors
scored in the system. If the application passes the credit scoring
stage but the creditor then denies the credit request based on a
judgmental assessment of the applicant's record, the reasons disclosed
must relate to the factors reviewed judgmentally, even if the factors
were also considered in the credit scoring component. If the
application is not approved or denied as a result of the credit
scoring, but falls into a gray band, and the creditor performs a
judgmental assessment and denies the credit after that assessment, the
reasons disclosed must come from both components of the system. The
same result applies where a judgmental assessment is the first
component of the combined system. As provided in comment 9(b)(2)-1,
disclosure of more than a combined total of four reasons is not likely
to be helpful to the applicant.

8. Automatic denial. Some credit decision methods
contain features that call for automatic denial because of one or more
negative factors in the applicant's record (such as the applicant's
previous bad credit history with that creditor, the applicant's
declaration of bankruptcy, or the fact that the applicant is a minor).
When a creditor denies the credit request because of an
automatic-denial factor, the creditor must disclose that specific
factor.

9. Combined ECOA-FCRA disclosures. The ECOA requires
disclosure of the principal reasons for denying or taking other adverse
action on an application for an extension of credit. The Fair Credit
Reporting Act (FCRA) requires a creditor to disclose when it has based
its decision in whole or in part on information from a source other
than the applicant or its own files. Disclosing that a credit report
was obtained and used in the denial of the application, as the FCRA
requires, does not satisfy the ECOA requirement to disclose specific
reasons. For example, if the applicant's credit history reveals
delinquent credit obligations and the application is denied for that
reason, to satisfy § 1002.9(b)(2) the creditor must disclose that the
application was denied because of the applicant's delinquent credit
obligations. The FCRA also requires a creditor to disclose, as
applicable, a credit score it used in taking adverse action along with
related information, including up to four key factors that adversely
affected the consumer's credit score (or up to five factors if the
number of inquiries made with respect to that consumer report is a key
factor). Disclosing the key factors that adversely affected the
consumer's credit score does not satisfy the ECOA requirement to
disclose specific reasons for denying or taking other adverse action on
an application or extension of credit. Sample forms C--1 through C--5
of Appendix C of the regulation provide for both the ECOA and FCRA
disclosures. See also comment 9(b)(2)-1.

9(c) Incomplete applications.

Paragraph 9(c)(1).

1. Exception for preapprovals. The requirement to
provide a notice of incompleteness does not apply to preapprovals that
constitute applications under § 1002.2(f).

Paragraph 9(c)(2).

1. Reapplication. If information requested by a creditor
is submitted by an applicant after the expiration of the time period
designated by the creditor, the creditor may require the applicant to
make a new application.

Paragraph 9(c)(3).

1. Oral inquiries for additional information. If an
applicant fails to provide the information in response to an oral
request, a creditor must send a written notice to the applicant within
the 30-day period specified in §§ 1002.9(c)(1) and (2). If the
applicant provides the information, the creditor must take action on
the application and notify the applicant in accordance with
§ 1002.9(a).

9(g) Applications submitted through a third
party.

1. Third parties. The notification of adverse action may
be given by one of the creditors to whom an application was submitted,
or by a noncreditor third party. If one notification is provided on
behalf of multiple creditors, the notice must contain the name and
address of each creditor. The notice must either disclose the
applicant's right to a statement of specific reasons within 30 days, or
give the primary reasons each creditor relied upon in taking the
adverse action-clearly indicating which reasons relate to which
creditor.

2. Third party notice--enforcement agency. If a single
adverse action notice is being provided to an applicant on behalf of
several creditors and they are under the jurisdiction of different
Federal enforcement agencies, the notice need not name each agency;
disclosure of any one of them will suffice.

3. Third-party notice--liability. When a notice is to be
provided through a third party, a creditor is not liable for an act or
omission of the third party that constitutes a violation of the
regulation if the creditor accurately and in a timely manner provided
the third party
with the information
necessary for the notification and maintains reasonable procedures
adapted to prevent such violations.

Section 1002.10Furnishing of Credit Information

1. Scope. The requirements of § 1002.10 for
designating and reporting credit information apply only to consumer
credit transactions. Moreover, they apply only to creditors that opt to
furnish credit information to credit bureaus or to other creditors;
there is no requirement that a creditor furnish credit information on
its accounts.

2. Reporting on all accounts. The requirements of
§ 1002.10 apply only to accounts held or used by spouses. However, a
creditor has the option to designate all joint accounts (or all
accounts with an authorized user) to reflect the participation of both
parties, whether or not the accounts are held by persons married to
each other.

3. Designating accounts. In designating accounts and
reporting credit information, a creditor need not distinguish between
accounts on which the spouse is an authorized user and accounts on
which the spouse is a contractually liable party.

4. File and index systems. The regulation does not
require the creation or maintenance of separate files in the name of
each participant on a joint or user account, or require any other
particular system of recordkeeping or indexing. It requires only that a
creditor be able to report information in the name of each spouse on
accounts covered by § 1002.10. Thus, if a creditor receives a credit
inquiry about the wife, it should be able to locate her credit file
without asking the husband's name.

10(a) Designation of accounts.

1. New parties. When new parties who are spouses
undertake a legal obligation on an account, as in the case of a
mortgage loan assumption, the creditor must change the designation on
the account to reflect the new parties and must furnish subsequent
credit information on the account in the new names.

2. Request to change designation of account. A request
to change the manner in which information concerning an account is
furnished does not alter the legal liability of either spouse on the
account and does not require a creditor to change the name in which the
account is maintained.

Section 1002.11Relation to State Law

11(a) Inconsistent state laws.

1. Preemption determination-New York. The Bureau
recognizes state law preemption determinations made by the Board of
Governors of the Federal Reserve System prior to July 21, 2011, until
and unless the Bureau makes and publishes any contrary determination.
The Board of Governors determined that the following provisions in the
state law of New York are preempted by the Federal law, effective
November 11, 1988:

i. Article 15, section 296a(1)(b). Unlawful
discriminatory practices in relation to credit on the basis of race,
creed, color, national origin, age, sex, marital status, or disability.
This provision is preempted to the extent that it bars taking a
prohibited basis into account when establishing eligibility for certain
special-purpose credit programs.

ii. Article 15, section 296a(1)(c). Unlawful
discriminatory practice to make any record or inquiry based on race,
creed, color, national origin, age, sex, marital status, or disability.
This provision is preempted to the extent that it bars a creditor from
requesting and considering information regarding the particular
characteristics (for example, race, national origin, or sex) required
for eligibility for special-purpose credit programs.

2. Preemption determination--Ohio. The Bureau recognizes
state law preemption determinations made by the Board of Governors of
the Federal Reserve System prior to July 21, 2011, until and unless the
Bureau makes and publishes any contrary determination. The Board of
Governors determined that the following provision in the state law of
Ohio is preempted by the Federal law, effective July 23, 1990:

i. Section 4112.021(B)(1)--Unlawful discriminatory
practices in credit transactions. This provision is preempted to
the extent that it bars asking or favorably considering
the
age of an elderly applicant;
prohibits the consideration of age in a credit scoring system; permits
without limitation the consideration of age in real estate
transactions; and limits the consideration of age in special-purpose
credit programs to certain government-sponsored programs identified in
the state law.

Section 1002.12Record Retention

12(a) Retention of prohibited information.

1. Receipt of prohibited information. Unless the
creditor specifically requested such information, a creditor does not
violate this section when it receives prohibited information from a
consumer reporting agency.

2. Use of retained information. Although a creditor may
keep in its files prohibited information as provided in § 1002.12(a),
the creditor may use the information in evaluating credit applications
only if permitted to do so by § 1002.6.

12(b) Preservation of records.

1. Copies. Copies of the original record include carbon
copies, photocopies, microfilm or microfiche copies, or copies produced
by any other accurate retrieval system, such as documents stored and
reproduced by computer. A creditor that uses a computerized or
mechanized system need not keep a paper copy of a document (for
example, of an adverse action notice) if it can regenerate all
pertinent information in a timely manner for examination or other
purposes.

2. Computerized decisions. A creditor that enters
information items from a written application into a computerized or
mechanized system and makes the credit decision mechanically, based
only on the items of information entered into the system, may comply
with § 1002.12(b) by retaining the information actually entered. It
is not required to store the complete written application, nor is it
required to enter the remaining items of information into the system.
If the transaction is subject to § 1002.13, however, the creditor is
required to enter and retain the data on personal characteristics in
order to comply with the requirements of that section.

Paragraph 12(b)(3).

1. Withdrawn and brokered applications. In most cases,
the 25-month retention period for applications runs from the date a
notification is sent to the applicant granting or denying the credit
requested. In certain transactions, a creditor is not obligated to
provide a notice of the action taken. (See, for example, comment 9-2.)
In such cases, the 25-month requirement runs from the date of
application, as when:

i. An application is withdrawn by the applicant.

ii. An application is submitted to more than one creditor on
behalf of the applicant, and the application is approved by one of the
other creditors.

12(b)(6) Self-tests.

1. The rule requires all written or recorded information about a
self-test to be retained for 25 months after a self-test has been
completed. For this purpose, a self-test is completed after the
creditor has obtained the results and made a determination about what
corrective action, if any, is appropriate. Creditors are required to
retain information about the scope of the self-test, the methodology
used and time period covered by the self-test, the report or results of
the self-test including any analysis or conclusions, and any corrective
action taken in response to the self-test.

12(b)(7) Preapplication marketing information.

1. Prescreened credit solicitations. The rule requires
creditors to retain copies of prescreened credit solicitations. For
purposes of this part, a prescreened solicitation is an "offer of
credit" as described in 15 U.S.C. 1681a(1) of the Fair Credit
Reporting Act. A creditor complies with this rule if it retains a copy
of each solicitation mailing that contains different terms, such as the
amount of credit offered, annual percentage rate, or annual fee.

2. List of criteria. A creditor must retain the list of
criteria used to select potential recipients. This includes the
criteria used by the creditor both to determine the potential
recipients of the particular solicitation and to determine who will
actually be offered credit.

3. Correspondence. A creditor may retain correspondence
relating to consumers' complaints about prescreened solicitations in
any manner that is reasonably accessible and is understandable to
examiners. There is no requirement to establish a separate database or
set of files for such correspondence, or to match consumer complaints
with specific solicitation programs.

2. Principal residence. The requirements of § 1002.13
apply only if an application relates to a dwelling that is or will be
occupied by the applicant as the principal residence. A credit
application related to a vacation home or a rental unit is not covered.
In the case of a two-to four-unit dwelling, the application is covered
if the applicant intends to occupy one of the units as a principal
residence.

3. Temporary financing. An application for temporary
financing to construct a dwelling is not subject to § 1002.13. But an
application for both a temporary loan to finance construction of a
dwelling and a permanent mortgage loan to take effect upon the
completion of construction is subject to § 1002.13.

4. New principal residence. A person can have only one
principal residence at a time. However, if a person buys or builds a
new dwelling that will become that person's principal residence within
a year or upon completion of construction, the new dwelling is
considered the principal residence for purposes of § 1002.13.

5. Transactions not covered. The information-collection
requirements of this section apply to applications for credit primarily
for the purchase or refinancing of a dwelling that is or will become
the applicant's principal residence. Therefore, applications for credit
secured by the applicant's principal residence but made primarily for a
purpose other than the purchase or refinancing of the principal
residence (such as loans for home improvement and debt consolidation)
are not subject to the information-collection requirements. An
application for an open-end home equity line of credit is not subject
to this section unless it is readily apparent to the creditor when the
application is taken that the primary purpose of the line is for the
purchase or refinancing of a principal dwelling.

6. Refinancings. A refinancing occurs when an existing
obligation is satisfied and replaced by a new obligation undertaken by
the same borrower. A creditor that receives an application to refinance
an existing extension of credit made by that creditor for the purchase
of the applicant's dwelling may request the monitoring information
again but is not required to do so if it was obtained in the earlier
transaction.

7. Data collection under Regulation C. See comment
5(a)(2)-2.

13(b) Obtaining of information.

1. Forms for collecting data. A creditor may collect the
information specified in § 1002.13(a) either on an application form
or on a separate form referring to the application. The applicant must
be offered the option to select more than one racial designation.

2. Written applications. The regulation requires written
applications for the types of credit covered by § 1002.13. A creditor
can satisfy this requirement by recording on paper or by means of
computer the information that the applicant provides orally and that
the creditor normally considers in a credit decision.

3. Telephone, mail applications.

i. A creditor that accepts an application by telephone or mail
must request the monitoring information.

ii. A creditor that accepts an application by mail need not make
a special request for the monitoring information if the applicant has
failed to provide it on the application form returned to the creditor.

iii. If it is not evident on the face of an application that it
was received by mail, telephone, or via an electronic medium, the
creditor should indicate on the form or other application record how
the application was received.

4. Video and other electronic-application
processes.

i. If a creditor takes an application through an electronic
medium that allows the creditor to see the applicant, the creditor must
treat the application as taken in person. The creditor must note the
monitoring information on the basis of visual observation or surname,
if the applicant chooses not to provide the information.

ii. If an applicant applies through an electronic medium without
video capability, the creditor treats the application as if it were
received by mail.

5. Applications through loan-shopping services. When a
creditor receives an application through an unaffiliated loan-shopping
service, it does not have to request the monitoring information for
purposes of the ECOA or Regulation B. Creditors subject to the Home
Mortgage Disclosure Act should be aware, however, that data collection
may be called for under Regulation C (12 CFR part 1003), which
generally requires creditors to report, among other things, the sex and
race of an applicant on brokered applications or applications received
through a correspondent.

6. Inadvertent notation. If a creditor inadvertently
obtains the monitoring information in a dwelling-related transaction
not covered by § 1002.13, the creditor may process and retain the
application without violating the regulation.

13(c) Disclosure to applicants.

1. Procedures for providing disclosures. The disclosure
to an applicant regarding the monitoring information may be provided in
writing. Appendix B contains a sample disclosure. A creditor may devise
its own disclosure so long as it is substantially similar. The creditor
need not orally request the monitoring information if it is requested
in writing.

13(d) Substitute monitoring program.

1. Substitute program. An enforcement agency may adopt,
under its established rulemaking or enforcement procedures, a program
requiring creditors under its jurisdiction to collect information in
addition to information required by this section.

Section 1002.14Rules on Providing Appraisals and
Valuations

14(a) Providing appraisals and other valuations.

1. Multiple applicants. If there is more than one
applicant, the written disclosure about written appraisals, and the
copies of appraisals and other written valuations, need only be given
to one applicant. However, these materials must be given to the primary
applicant where one is readily apparent. Similarly, if there is more
than one applicant for credit in the transaction, one applicant may
provide a waiver under § 1002.14(a)(1), but it must be the primary
applicant where one is readily apparent.

14(a)(1) In general.

1. Coverage. Section 1002.14 covers applications for
credit to be secured by a first lien on a dwelling, as that term is
defined in § 1002.14(b)(2), whether the credit is for a business
purpose (for example, a loan to start a business) or a consumer purpose
(for example, a loan to purchase a home).

2. Renewals. Section 1002.14(a)(1) applies when an
applicant requests the renewal of an existing extension of credit and
the creditor develops a new appraisal or other written valuation.
Section 1002.14(a)(1) does not apply to the extent a creditor uses the
appraisals and other written valuations that were previously developed
in connection with the prior extension of credit to evaluate the
renewal request.

3. Written. For purposes of § 1002.14, an
"appraisal or other written valuation" includes, without
limitation, an appraisal or other valuation received or developed by
the creditor in paper form (hard copy); electronically, such as CD or
email; or by any other similar media. See § 1002.14(a)(5) regarding
the provision of copies of appraisals and other written valuations to
applicants via electronic means.

4. Timing. Section 1002.14(a)(1) requires that the
creditor "provide" copies of appraisals and other written
valuations to the applicant "promptly upon completion," or no
later than three business days before consummation (for closed-end
credit) or account opening (for open-end credit), whichever is
earlier.

i. For purposes of this timing requirement, "provide" means
"deliver." Delivery occurs three business days after mailing or
delivering the copies to the last-known address of the applicant, or
when evidence indicates actual receipt by the applicant, whichever is
earlier. Delivery to or actual receipt by the applicant by electronic
means must comply with the E-Sign Act, as provided for in
§ 1002.14(a)(5).

ii. The application and meaning of the "promptly upon
completion" standard depends upon the facts and circumstances,
including but not limited to when the creditor receives the appraisal
or other written valuation, and the extent of any review or revision
after the creditor receives it.

iii. "Completion" occurs when the last version is received
by the creditor, or when the creditor has reviewed and accepted the
appraisal or other written valuation to include any changes or
corrections required, whichever is later. See also comment
14(a)(1)--7.

iv. In a transaction that is being consummated (for closed-end
credit) or in which the account is being opened (for open-end credit),
if an appraisal or other written valuation has been developed but is
not yet complete, the deadline for providing a copy of three business
days before consummation or account opening still applies, unless the
applicant waived that deadline as provided under § 1002.14(a)(1), in
which case the copy must be provided at or before consummation or
account opening.

v. Even if the transaction will not be consummated (for
closed-end credit) or the account will not be opened (for open-end
credit), the copy must be provided "promptly upon completion" as
provided for in § 1002.14(a)(1), unless the applicant has waived that
deadline as provided under § 1002.14(a)(1), in which case as provided
for in § 1002.14(a)(1) the copy must be provided to the applicant no
later than 30 days after the creditor determines the transaction will
not be consummated or the account will not be opened.

5. Promptly upon completion--examples. Examples in which
the "promptly upon completion" standard would be satisfied
include, but are not limited to, those in subparagraphs i, ii, and iii
below. Examples in which the "promptly upon completion" standard
would not be satisfied include, but are not limited to, those in
subparagraphs iv and v below.

i. Sending a copy of an appraisal within a week of
completion with sufficient time before consummation (or account opening
for open-end credit). On day 15 after receipt of the application,
the creditor's underwriting department reviews an appraisal and
determines it is acceptable. One week later, the creditor sends a copy
of the appraisal to the applicant. The applicant actually receives the
copy more than three business days before the date of consummation (or
account opening). The creditor has provided the copy of the appraisal
promptly upon completion.

ii. Sending a copy of a revised appraisal within a week
after completion and with sufficient time before consummation (or
account opening for open-end credit). An appraisal is being
revised, and the creditor does not receive the revised appraisal until
day 45 after the application, when the creditor immediately determines
the revised appraisal is acceptable. A week later, the creditor sends a
copy of the revised appraisal to the applicant, and does not send a
copy of the initial appraisal to the applicant. The applicant actually
receives the copy of the revised appraisal three business days before
the date of consummation (or account opening). The creditor has
provided the appraisal copy promptly upon completion.

iii. Sending a copy of an AVM report within a week after
its receipt and with sufficient time before consummation (or account
opening for open-end credit). The creditor receives an automated
valuation model (AVM) report on day 5 after receipt of the application
and treats the AVM report as complete when it is received. On day 12
after receipt of the application, the creditor sends the applicant a
copy of the valuation. The applicant actually receives the valuation
more than three business days before the date of consummation (or
account opening). The creditor has provided the copy of the AVM report
promptly upon completion.

iv. Delay in sending an appraisal. On day 12 after
receipt of the application, the creditor's underwriting department
reviews an appraisal and determines it is
acceptable.
Although the creditor has determined the appraisal is complete, the
creditor waits to provide a copy to the applicant until day 42, when
the creditor schedules the consummation (or account opening) to occur
on day 50. The creditor has not provided the copy of the appraisal
promptly upon completion.

v. Delay in sending an AVM report while waiting for
completion of a second valuation. The creditor receives an AVM
report on day 5 after application and completes its review of the AVM
report the day it is received. The creditor also has ordered an
appraisal, but the initial version of the appraisal received by the
creditor is found to be deficient and is sent for review. The creditor
waits 30 days to provide a copy of the completed AVM report, until the
appraisal is completed on day 35. The creditor then provides the
applicant with copies of the AVM report and the revised appraisal.
While the appraisal report was provided promptly upon completion, the
AVM report was not.

6. Waiver. Section 1002.14(a)(1) permits the applicant
to waive the timing requirement if the creditor provides the copies at
or before consummation or account opening, except where otherwise
prohibited by law. Except where otherwise prohibited by law, an
applicant's waiver is effective under § 1002.14(a)(1) in either of
the following two situations:

i. If, no later than three business days prior to consummation or
account opening, the applicant provides the creditor an affirmative
oral or written statement waiving the timing requirement under this
rule; or

ii. If, within three business days of consummation or account
opening, the applicant provides the creditor an affirmative oral or
written statement waiving the timing requirement under this rule and
the waiver pertains solely to the applicant's receipt of a copy of an
appraisal or other written valuation that contains only clerical
changes from a previous version of the appraisal or other written
valuation provided to the applicant three or more business days prior
to consummation or account opening. For purpose of this second type of
waiver, revisions will only be considered to be clerical in nature if
they have no impact on the estimated value, and have no impact on the
calculation or methodology used to derive the estimate. In addition,
under § 1002.14(a)(1) the applicant still must receive the copy of
the revision at or prior to consummation or account opening.

7. Multiple versions of appraisals or valuations. For
purposes of § 1002.14(a)(1), the reference to "all" appraisals
and other written valuations does not refer to all versions of the same
appraisal or other valuation. If a creditor has received multiple
versions of an appraisal or other written valuation, the creditor is
required to provide only a copy of the latest version received. If,
however, a creditor already has provided a copy of one version of an
appraisal or other written valuation to an applicant, and the creditor
later receives a revision of that appraisal or other written valuation,
then the creditor also must provide the applicant with a copy of the
revision to comply with § 1002.14(a)(1). If a creditor receives only
one version of an appraisal or other valuation that is developed in
connection with the applicant's application, then that version must be
provided to the applicant to comply with § 1002.14(a)(1). See
also comment 14(a)(1)--4 above.

14(a)(2) Disclosure.

1. Appraisal independence requirements not affected.
Nothing in the text of the disclosure required by § 1002.14(a)(2)
should be construed to affect, modify, limit, or supersede the
operation of any legal, regulatory, or other requirements or standards
relating to independence in the conduct of appraisers or the use of
applicant-ordered appraisals by creditors.

14(a)(3) Reimbursement.

1. Photocopy, postage, or other costs. Creditors may not
charge for photocopy, postage, or other costs incurred in providing a
copy of an appraisal or other written valuation in accordance with
section 14(a)(1).

2. Reasonable fee for reimbursement. Section
1002.14(a)(3) does not prohibit a creditor from imposing a reasonable
fee to reimburse the creditor's costs of the appraisal or
other
written valuation, so long as the fee is not increased to cover the
costs of providing copies of such appraisals or other written
valuations under § 1002.14(a)(1). A creditor's cost may include an
administration fee charged to the creditor by an appraisal management
company as defined in 12 U.S.C. 3350(11). Section 1002.14(a)(3) does
not, however, legally obligate the applicant to pay such fees. Further,
creditors may not impose fees for reimbursement of the costs of an
appraisal or other valuation where otherwise prohibited by law. For
instance, a creditor may not charge a consumer a fee for the
performance of a second appraisal if the second appraisal is required
under 15 U.S.C. 1639h(b)(2) and 12 CFR 1026.35(c).

14(b) Definitions.

14(b)(1) Consummation.

1. State law governs. When a contractual obligation on
the consumer's part is created is a matter to be determined under
applicable law; § 1002.14 does not make this determination. A
contractual commitment agreement, for example, that under applicable
law binds the consumer to the credit terms would be consummation.
Consummation, however, does not occur merely because the consumer has
made some financial investment in the transaction (for example, by
paying a nonrefundable fee) unless, of course, applicable law holds
otherwise.

2. Credit vs. sale. Consummation does not occur when the
consumer becomes contractually committed to a sale transaction, unless
the consumer also becomes legally obligated to accept a particular
credit arrangement.

14(b)(2) Dwelling.

1. "Motor vehicles" not covered. The requirements
of § 1002.14 do not apply to "motor vehicles" as defined by 12
U.S.C. 5519(f)(1).

14(b)(3) Valuation.

1. Valuations--examples. Examples of valuations include
but are not limited to:

i. A report prepared by an appraiser (whether or not licensed or
certified) including the appraiser's estimate of the property's value
or opinion of value.

ii. A document prepared by the creditor's staff that assigns
value to the property.

iii. A report approved by a government-sponsored enterprise for
describing to the applicant the estimate of the property's value
developed pursuant to the proprietary methodology or mechanism of the
government-sponsored enterprise.

iv. A report generated by use of an automated valuation model to
estimate the property's value.

v. A broker price opinion prepared by a real estate broker,
agent, or sales person to estimate the property's value.

2. Attachments and exhibits. The term "valuation"
includes any attachments and exhibits that are an integrated part of
the valuation.

3. Other documentation. Not all documents that discuss
or restate a valuation of an applicant's property constitute a
"valuation" for purposes of § 1002.14(b)(3). Examples of
documents that discuss the valuation of the applicant's property or
may reflect its value but nonetheless are not "valuations"
include but are not limited to:

i. Internal documents that merely restate the estimated value of
the dwelling contained in an appraisal or written valuation being
provided to the applicant.

v. Reports reflecting property inspections that do not provide an
estimate of the value of the property and are not used to develop an
estimate of the value of the property.

vi. Appraisal reviews that do not include the appraiser's
estimate of the property's value or opinion of value.

14(c) Definitions.

1. Appraisal reports. Examples of appraisal reports are:

i. A report prepared by an appraiser (whether or not licensed or
certified), including written comments and other documents submitted to
the creditor in support of the appraiser's estimate or opinion of the
property's value.

ii. A document prepared by the creditor's staff that assigns
value to the property, if a third-party appraisal report has not been
used.

iii. An internal review document reflecting that the creditor's
valuation is different from a valuation in a third party's appraisal
report (or different from valuations that are publicly available or
valuations such as manufacturers' invoices for mobile homes).

2. Other reports. The term "appraisal report" does
not cover all documents relating to the value of the applicant's
property. Examples of reports not covered are:

i. Internal documents, if a third-party appraisal report was used
to establish the value of the property.

ii. Governmental agency statements of appraised value.

iii. Valuations lists that are publicly available (such as
published sales prices or mortgage amounts, tax assessments, and retail
price ranges) and valuations such as manufacturers' invoices for
mobile homes.

Section 1002.15Incentives for Self-Testing and
Self-Correction

15(a) General rules.

15(a)(1) Voluntary self-testing and correction.

1. Activities required by any governmental authority are not
voluntary self-tests. A governmental authority includes both
administrative and judicial authorities for Federal, State, and local
governments.

15(a)(2) Corrective action required.

1. To qualify for the privilege, appropriate corrective action is
required when the results of a self-test show that it is more likely
than not that there has been a violation of the ECOA or this part. A
self-test is also privileged when it identifies no violations.

2. In some cases, the issue of whether certain information is
privileged may arise before the self-test is complete or corrective
actions are fully under way. This would not necessarily prevent a
creditor from asserting the privilege. In situations where the
self-test is not complete, for the privilege to apply the lender must
satisfy the regulation's requirements within a reasonable period of
time. To assert the privilege where the self-test shows a likely
violation, the rule requires, at a minimum, that the creditor establish
a plan for corrective action and a method to demonstrate progress in
implementing the plan. Creditors must take appropriate corrective
action on a timely basis after the results of the self-test are known.

3. A creditor's determination about the type of corrective action
needed, or a finding that no corrective action is required, is not
conclusive in determining whether the requirements of this paragraph
have been satisfied. If a creditor's claim of privilege is challenged,
an assessment of the need for corrective action or the type of
corrective action that is appropriate must be based on a review of the
self-testing results, which may require an in camera inspection of the
privileged documents.

15(a)(3) Other privileges.

1. A creditor may assert the privilege established under this
section in addition to asserting any other privilege that may apply,
such as the attorney-client privilege or the work-product privilege.
Self-testing data may be privileged under this section whether or not
the creditor's assertion of another privilege is upheld.

15(b) Self-test defined.

15(b)(1) Definition.

Paragraph 15(b)(1)(i).

1. To qualify for the privilege, a self-test must be sufficient to
constitute a determination of the extent or effectiveness of the
creditor's compliance with the Act and Regulation B. Accordingly, a
self-test is only privileged if it was designed and used for that
purpose. A self-test that is designed or used to determine compliance
with other laws or regulations or for other purposes is not privileged
under this rule. For example, a self-test designed to evaluate employee
efficiency or customers' satisfaction with the level of service
provided by the creditor is not privileged even if evidence of
discrimination is uncovered incidentally. If a self-test is designed
for multiple purposes, only the portion designed to determine
compliance with the ECOA is eligible for the privilege.

Paragraph 15(b)(1)(ii).

1. The principal attribute of self-testing is that it constitutes a
voluntary undertaking by the creditor to produce new data or factual
information that otherwise would not be available and could not be
derived from loan or application files or other records related to
credit transactions. Self-testing includes, but is not limited to, the
practice of using fictitious applicants for credit (testers), either
with or without the use of matched pairs. A creditor may elect to test
a defined segment of its business, for example, loan applications
processed by a specific branch or loan officer, or applications made
for a particular type of credit or loan program. A creditor also may
use other methods of generating information that is not available in
loan and application files, such as surveying mortgage loan applicants.
To the
extent permitted by law,
creditors might also develop new methods that go beyond traditional
pre-application testing, such as hiring testers to submit fictitious
loan applications for processing.

2. The privilege does not protect a creditor's analysis performed
as part of processing or underwriting a credit application. A
creditor's evaluation or analysis of its loan files, Home Mortgage
Disclosure Act data, or similar types of records (such as broker or
loan officer compensation records) does not produce new information
about a creditor's compliance and is not a self-test for purposes of
this section. Similarly, a statistical analysis of data derived from
existing loan files is not privileged.

15(b)(3) Types of information not privileged.

Paragraph 15(b)(3)(i).

1. The information listed in this paragraph is not privileged and
may be used to determine whether the prerequisites for the privilege
have been satisfied. Accordingly, a creditor might be asked to identify
the self-testing method, for example, whether preapplication testers
were used or data were compiled by surveying loan applicants.
Information about the scope of the self-test (such as the types of
credit transactions examined, or the geographic area covered by the
test) also is not privileged.

Paragraph 15(b)(3)(ii).

1. Property appraisal reports, minutes of loan committee meetings
or other documents reflecting the basis for a decision to approve or
deny an application, loan policies or procedures, underwriting
standards, and broker compensation records are examples of the types of
records that are not privileged. If a creditor arranges for testers to
submit loan applications for processing, the records are not related to
actual credit transactions for purposes of this paragraph and may be
privileged self-testing records.

15(c) Appropriate corrective action.

1. The rule only addresses the corrective actions required for a
creditor to take advantage of the privilege in this section. A creditor
may be required to take other actions or provide additional relief if a
formal finding of discrimination is made.

15(c)(1) General requirement.

1. Appropriate corrective action is required even though no
violation has been formally adjudicated or admitted by the creditor. In
determining whether it is more likely than not that a violation
occurred, a creditor must treat testers as if they are actual
applicants for credit. A creditor may not refuse to take appropriate
corrective action under this section because the self-test used
fictitious loan applicants. The fact that a tester's agreement with the
creditor waives the tester's legal right to assert a violation does not
eliminate the requirement for the creditor to take corrective action,
although no remedial relief for the tester is required under paragraph
15(c)(3).

15(c)(2) Determining the scope of appropriate
corrective action.

1. Whether a creditor has taken or is taking corrective action that
is appropriate will be determined on a case-by-case basis. Generally,
the scope of the corrective action that is needed to preserve the
privilege is governed by the scope of the self-test. For example, a
creditor that self-tests mortgage loans and discovers evidence of
discrimination may focus its corrective actions on mortgage loans, and
is not required to expand its testing to other types of loans.

2. In identifying the policies or practices that are a likely cause
of the violation, a creditor might identify inadequate or improper
lending policies, failure to implement established policies, employee
conduct, or other causes. The extent and scope of a likely violation
may be assessed by determining which areas of operations are likely to
be affected by those policies and practices, for example, by
determining the types of loans and stages of the application process
involved and the branches or offices where the violations may have
occurred.

3. Depending on the method and scope of the self-test and the
results of the test, appropriate corrective action may include one or
more of the following:

i. If the self-test identifies individuals whose applications
were inappropriately processed, offering to extend credit if the
application was improperly denied and compensating such persons for
out-of-pocket costs and other compensatory damages;

ii. Correcting institutional policies or procedures that may have
contributed to the likely violation, and adopting new policies as
appropriate;

iii. Identifying and then training and/or disciplining the
employees involved;

iv. Developing outreach programs, marketing strategies, or loan
products to serve more effectively segments of the lender's markets
that may have been affected by the likely discrimination; and

v. Improving audit and oversight systems to avoid a recurrence of
the likely violations.

15(c)(3) Types of relief.

Paragraph 15(c)(3)(ii).

1. The use of pre-application testers to identify policies and
practices that illegally discriminate does not require creditors to
review existing loan files for the purpose of identifying and
compensating applicants who might have been adversely affected.

2. If a self-test identifies a specific applicant who was
discriminated against on a prohibited basis, to qualify for the
privilege in this section the creditor must provide appropriate
remedial relief to that applicant; the creditor is not required to
identify other applicants who might also have been adversely affected.

Paragraph 15(c)(3)(iii).

1. A creditor is not required to provide remedial relief to an
applicant that would not be available by law. An applicant might also
be ineligible for certain types of relief due to changed circumstances.
For example, a creditor is not required to offer credit to a denied
applicant if the applicant no longer qualifies for the credit due to a
change in financial circumstances, although some other type of relief
might be appropriate.

15(d)(1) Scope of privilege.

1. The privilege applies with respect to any examination,
investigation or proceeding by Federal, State, or local government
agencies relating to compliance with the Act or this part. Accordingly,
in a case brought under the ECOA, the privilege established under this
section preempts any inconsistent laws or court rules to the extent
they might require disclosure of privileged self-testing data. The
privilege does not apply in other cases (such as in litigation filed
solely under a State's fair lending statute). In such cases, if a court
orders a creditor to disclose self-test results, the disclosure is not
a voluntary disclosure or waiver of the privilege for purposes of
paragraph 15(d)(2); a creditor may protect the information by seeking a
protective order to limit availability and use of the self-testing data
and prevent dissemination beyond what is necessary in that case.
Paragraph 15(d)(1) precludes a party who has obtained privileged
information from using it in a case brought under the ECOA, provided
the creditor has not lost the privilege through voluntary disclosure
under paragraph 15(d)(2).

15(d)(2) Loss of privilege.

Paragraph 15(d)(2)(i).

1. A creditor's corrective action, by itself, is not considered a
voluntary disclosure of the self-test report or results. For example, a
creditor does not disclose the results of a self-test merely by
offering to extend credit to a denied applicant or by inviting the
applicant to reapply for credit. Voluntary disclosure could occur under
this paragraph, however, if the creditor disclosed the self-test
results in connection with a new offer of credit.

2. The disclosure of self-testing results to an independent
contractor acting as an auditor or consultant for the creditor on
compliance matters does not result in loss of the
privilege.

Paragraph 15(d)(2)(ii).

1. The privilege is lost if the creditor discloses privileged
information, such as the results of the self-test. The privilege is not
lost if the creditor merely reveals or refers to the existence of the
self-test.

Paragraph 15(d)(2)(iii).

1. A creditor's claim of privilege may be challenged in a court or
administrative law proceeding with appropriate jurisdiction. In
resolving the issue, the presiding officer may require the creditor to
produce privileged information about the self-test.

Paragraph 15(d)(3) Limited use of privileged
information.

1. A creditor may be required to produce privileged documents for
the purpose of determining a penalty or remedy after a violation of the
ECOA or Regulation B has been formally adjudicated or admitted. A
creditor's compliance with such a requirement does not evidence the
creditor's intent to forfeit the privilege.

Section 1002.16Enforcement, Penalties, and
Liabilities

16(c) Failure of compliance.

1. Inadvertent errors. Inadvertent errors include, but
are not limited to, clerical mistake, calculation error, computer
malfunction, and printing error. An error of legal judgment is not an
inadvertent error under the regulation.

2. Correction of error. For inadvertent errors that
occur under §§ 1002.12 and 1002.13, this section requires that they
be corrected prospectively.

Appendix B--Model Application Forms

1. Freddie Mac/Fannie Mae form--residential loan application. The
uniform residential loan application form (Freddie Mac 65/Fannie Mae
1003), including supplemental form (Freddie Mac 65A/Fannie Mae 1003A),
prepared by the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association and dated October 1992 may be used by
creditors without violating this part. Creditors that are governed by
the monitoring requirements of this part (which limits collection to
applications primarily for the purchase or refinancing of the
applicant's principal residence) should delete, strike, or modify the
data-collection section on the form when using it for transactions not
covered by § 1002.13(a) to ensure that they do not collect the
information. Creditors that are subject to more extensive collection
requirements by a substitute monitoring program under § 1002.13(d) or
by the Home Mortgage Disclosure Act (HMDA) may use the form as issued,
in compliance with the substitute program or HMDA.

2. FHLMC/FNMA form--home improvement loan application. The
home-improvement and energy loan application form (FHLMC 703/FNMA
1012), prepared by the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association and dated October 1986, complies
with the requirements of the regulation for some creditors but not
others because of the form's section "Information for Government
Monitoring Purposes." Creditors that are governed by § 1002.13(a)
of the regulation (which limits collection to applications primarily
for the purchase or refinancing of the applicant's principal residence)
should delete, strike, or modify the data-collection section on the
form when using it for transactions not covered by § 1002.13(a) to
ensure that they do not collect the information. Creditors that are
subject to more extensive collection requirements by a substitute
monitoring program under § 1002.13(d) may use the form as issued, in
compliance with that substitute program.

Appendix C--Sample Notification Forms

1. Form C--9. If not otherwise provided under other
applicable disclosure requirements, creditors may design their own
form, add to, or modify the model form to reflect their individual
policies and procedures. For example, a creditor may want to add:

i. A telephone number that applicants may call to leave their
name and the address to which a copy of the appraisal or other written
valuation should be sent.

ii. A notice of the cost the applicant will be required to pay
the creditor for the appraisal or other valuation.

[Source: 78 Fed. Reg. 7250, January 31, 2013, effective January
18, 2014; 78 Fed. Reg. 60437, October 1, 2013, effective January 10,
2014, amendment to Commentary to § 1002.14(b)(3) in Supplement I to
part 1002 is effective January 18, 2014]